IRR-Philadelphia Mid-Year Viewpoint 2015 Local Market Report - Industrial
Bulk warehouse/distribution properties, particularly located in strategic distribution nodes, such as Lehigh Valley and Southern New Jersey, are highly coveted by investors. Cap rates have fallen dramatically, and vacancy allowances reported by brokers and market participants have significantly evaporated, driving up values owing to an extremely competitive capital markets environment and strong underlying space demand from users.
New bulk distribution buildings for 2014 include Walmart (1,200,000 SF) and Amcor Rigid Plastics (480,000 SF) in the Lehigh Valley, and PetSmart (870,000 SF) and Dollar General (930,000 SF) in the rapidly developing I-81/I-78 Corridor. There is evidence of some new speculative construction in these upper echelon submarkets. As long-term strategic logistical hubs, these primary markets are forecasted to enjoy sustainable growth and as such, the new speculative construction appears a risk-adjusted opportunity for investors.
The flex market is now showing signs of life with over million square feet of new inventory. This positive outlook comes on the heels of a previously long-term negative trend. New inventory growth is very limited in the flex category and is almost exclusively in bulk warehouse/distribution centers. While older vintage flex buildings with lower ceiling heights are languishing with high vacancy and lower rents, higher, clear, and modern buildings are in demand, particularly along distribution corridors and in close proximity to the Philadelphia urban core. We forecast a decreasing vacancy rate and increasing rental rate owing to employment growth and a lack of developable land in the City of Philadelphia and close-in suburban core. We anticipate the smaller flex buildings, particularly warehousing, should follow the strong regional performance of the bulk distribution buildings in and around urban centers. Finally, owner-users including manufacturers remain a fundamental anchor of the industrial market, particularly in the City of Philadelphia.
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IRR Mid-Year Viewpoint 2015 comprises a National Overview report and 300+ two-page Local Market Reports for all key property types as well as additional resources, including metrics methodology, graphs, and tables; these free reports may be downloaded from IRR’s site here.